Misrepresentation, Non-Disclosure and Breach ... - Law Commission

5.76 We were told, for example, about a South American highway authority that
provided the insurer with a survey report on each road, in Spanish: “It took us 2
weeks to get it translated”. With the development of information technology, the
problem is likely to increase.
5.77 To some extent, if the parties have the ability to transmit large quantities of
information, they will. However, we think that a narrower test of what is material
just might do less to encourage the present tendency to inundate the insurer with
information.
Insureds who are professionally advised
5.78 At this point we need to deal with an argument that was raised in response to our
first Issues Paper. We were urged to consider drawing a distinction between
business insureds who are professionally advised and those who are not, and to
confine any reforms to the latter. The argument would apply more widely than just
to how to treat the honest and reasonable insured, but this is the point at which it
first becomes relevant and we explain here why we have not adopted that
approach.
5.79 We agree that a business insured who uses an insurance intermediary is less
likely to find that the law or the contract terms do not match its reasonable
expectations. And if it is not given proper advice and ends up disappointed, it
may be able to recover from its advisor. In formulating our proposals for business
insurance, we have taken into account the likelihood that the insured will be
professionally advised, and this will often be critical in applying the tests we
propose. For example, the test of what a reasonable insured would be expected
to disclose will depend on the advice received. However we feel unable to draw a
sharp line between those who are professionally advised and those who are not,
for the simple reason that it is impossible to define professional advice in a
precise way. Furthermore, if businesses realised that their rights would reduce as
soon as they used an advisor, this may act as a disincentive to receive the advice
they need.
5.80 As we will see when we consider pre-contract information and intermediaries,
there are many different types of insurance professional who may be involved in
the making of an insurance contract, and it would be hard to define which of them
should count for this purpose. Some will give careful advice, others may be much
less involved, for example merely introducing the proposer to the insurer.
5.81 In Part 10, we provisionally propose that some insurance professionals should be
treated as the insurer’s agent; others will continue to be treated as agents of the
insured. For example, we think that “tied” agents should normally be considered
to act for the insurer, while independent advisers normally act for the insured.
However these categories are imprecise and difficult to distinguish. While the fact
that an insured received independent advice should be taken into account in
applying the tests we propose, it is difficult to draw hard and fast lines.
5.82 We have therefore concluded that our proposed reforms should also apply to
business insureds who have been professionally advised.
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